Is now a good time to be investing in online fitness?

If you sign up to the view that the Covid-crisis will create permanent changes, then maybe one of those permanent changes will be online fitness. Should you be investing?

Article updated: 4 June 2020 2:00pm Author: Michael Baxter

Make exercise fun and we are more likely to do it. Let’s face it, the gym can be boring. Competitive sport, on the other hand, takes your mind off the tedium of exercise. But that’s not for everyone.

Maybe technology can provide a solution. For example, make exercise interactive and let it combine your physical actions with the movement of graphics on screen and maybe you can have fun and get fit at the same time. Is there an opportunity here for investors? Yes I think there is. The combination of technology and fitness could create a massive opportunity.

In particular, I can see how virtual reality and augmented reality could work. You could box Tyson Fury, take penalties against Manuel Neuer, (the Bayern goalkeeper), sprint against Usain Bolt, or play tennis against Roger Federer.

Of course that’s not new, you can do that now with video games. But supposing technology actually translates your body movements onto screen. You could box against a hologram — for example, or wearing a virtual reality headset, escape into a virtual world, with the movements of your arms moving your avatar. As technology advances such simulations could become ultra-realistic.

So yes, I can see the potential but we are not there yet. Current technology merely provides a hint of things to follow.

But the Covid crisis may be accelerating the pace of change.

So how can you invest?

The obvious candidate for online fitness is Peloton. Few products currently available get even close to my vision of online fitness, but maybe Peloton is the exception.

It offers a sophisticated exercise bike linked to a TV to give you a kind of virtual cycling experience.

The loss making company saw its IPO in September last year and by the beginning of March, shares were down by about a fifth from the IPO price.

Then two things happened. Firstly, it released results showing revenue had increased significantly in the quarter ending the last day of March. The other development was, what was is it now? Oh yes, the Covid lockdown. As its latest quarter coincided with the beginning of the lockdown, the surging results may have been influenced by Covid. During the period, losses at the company increased and it had challenges meeting demand. Since the beginning of March shares have increased two and half fold.

There is more than one aspect of the Peloton offering. You can buy a Peloton bike, that will set you back $2,244. Or there is the treadmill — $4,295. Or you can download the app, and opt for home workouts that require neither.

Peloton is a controversial company. I am tempted to say that the time to have bought in was three months ago and the fact that it is still making losses is cause for concern. However, I like the underlying concept but I don’t think the product offering is quite right yet. When augmented and virtual reality evolve and become more advanced, it could be well placed.

Nautilus, sells home fitness equipment and has beem around since 1986. Shares have increased six-fold since the middle of March — yes, six-fold. And this despite releasing results earlier in May which revealed a hit on sales caused by gym closures. The company reacted fast to the Covid crisis, pushing home fitness kits. The company has a supply backlog — suggesting sales may be set to surge.

Shares in Lululemon have also soared — more than doubled since March 17, although they are only up by around a fifth since 20th February. Lululemon isn’t into online fitness though, it sells fitness clothing — it has done well during the Covid crisis because of its online presence. Impressive though this company’s performance is, I am not sure you can really describe it as an example of a new age fitness company.

Also of interest in this area is Fitbit. Sales are surging, but the company is due to be purchased by Google parent Alphabet. The deal isn’t a forgone certainty, but investing in this company is as much about investing in the likelihood of an Alphabet merger as it is the strength of the company. But one key point stands out on this company. Today, the share price is just one seventh of the price at IPO in 2015.

Hype.

I think that the story of Fitbit illustrates an underlying truth with online fitness — it has seen an awful lot of hype.

Go for established firms

A better option for investors might be to look at companies that are already successful in other areas but whose approach could also work well in online fitness.

Computer games companies like Electronic Arts, Alphabet, Facebook with its investment into virtual reality via its purchase of Oculus Rift, and Apple, which is investing in augmented reality, may well be the more interesting plays in this space in the long run.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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